I have been charged more than 52% income tax !

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The maximum income tax rate in the Netherlands is 51.75% or as we refer to the 52% tax rate. How can you pay more?

52% income tax – too much

Persons arriving from abroad are terrified about the 52% tax rate we have in the Netherlands. Often those foreigners have the so called 30% ruling, so  the blow is softened.

The highest tax rate use to be 72% for your information. That takes any ambition you might have to earn a high income from you, but during this regime there were also plenty of tax deduction possibilities we can only dream of today. Today we have a system with a lower tax rate than 72% and with much less tax deductible items.

If the 52% income tax is the highest rate, how come some are charged 56% or 58% income tax on their salary?

This is not easy to explain, as basically everybody assume it is an error, but it is not. We are a socialistic country, hence the persons that earn more, need to carry more tax, then the persons earning less.

Part of the salary from employment is that the employer has taken into account the labour tax credit and the general tax credit. The higher the income is, the lower these two tax credits are. Up to a point no tax credits are taken into account.

If you then have an income of for instance EUR 55.000, you are not yet in the 52% tax bracket and you are entitled to labour and general tax credit. If you are then paid a bonus, or holiday pay or any other amount by your employer that is subject to wage tax, the percentage applicable can be 52%, as you are or are about to exceed the threshold to the 52% tax bracket. If than 52% tax is being withheld, not enough tax is being withheld, as the employer has taken into account during previous monthly salaries in this year with these tax credits.

I have been charged more than 52% income tax !
I have been charged more than 52% income tax !

The rule is that an employee who only has employment with one employer does not need to file an income tax return. But if then tax credits are not adjusted when a sudden additional salary is being paid, this rule can no longer be applied. A tax credit can be already too high if holiday pay is being paid. The tax office does not want 5 mln employees to file their income tax return, hence the employer is obliged to correct the too high amount of tax credit in the wage tax withholding as well.

Hence the higher amount of tax than 51,75% is possible.

Orange Tax Services

52% income tax is a high percentage, and a higher percentage is even more undesired. But is it? If not more than 51,75% is collected by the employer, then the employee is obliged to file an income tax return and then in that return is shows income tax is due. But at that time you already spend the money, so paying income tax then, is even worse. Hence the solution of a higher tax rate is in everybody’s interest, but nobody likes it.